Buying a home with mortgage loan insurance

02 January 2018
by
National Bank

Did you know that mortgage insurance can allow you to purchase a
property with a down payment of only 5%? Here's how to do it.

With the rising cost of home ownership showing no signs of slowing
down anytime soon, you might easily imagine that access to property
ownership is more difficult these days. However, if you’re a potential
home buyer with a down payment of at least 5% saved, there’s a
solution that can help. Mortgage insurance. See how it can allow you
to go from being a renter to a buyer.

What’s the difference between this insurance, and the kind you get
through the bank?

It’s important not to confuse mortgage insurance with the life,
disability or critical illness mortgage loan insurance you can get
through your bank. The first is aimed at lenders, though it’s
generally paid by the borrower. As for the three others, they are
taken out by the borrower (that’s you!) to cover your loan in case of
death, disability of critical illness.

What is mortgage insurance?

It’s insurance that protects lenders while simultaneously allowing
consumers to buy a property even if they only have 5% of the purchase
price. In fact, if a buyer can’t put down 20% or more of the cost of
the home, financial institutions are required by Canada’s Bank Act to
have the loan insured. This obligation, which applies to all
Canadians, gives potential buyers more flexibility.

Essentially, when you are covered by mortgage insurance, the bank is
able to make a claim to recover the money it lent to you. This greatly
mitigates the risk to the bank when you go to take out your first mortgage.

Who is mortgage insurance for?

It affects you if you are planning to buy a single-family home, a
condominium, a manufactured or mobile home, a duplex, etc. and you
have between 5% and 19% of the cost of the home to put down. However,
there is a ceiling on how high the purchase price can be if you need
mortgage insurance. The maximum value or price of the property must be
below $1,000,000.

What are the advantages?

You can’t just look at the insurance premiums you’ll pay; you need to
think long term. Borrowing conditions and interest rates! Essentially,
thanks to mortgage insurance, the risks to lending establishments are
reduced. As a result, financial institutions are able to offer better
borrowing conditions and more advantageous interest rates. Without
this obligation, they would have no choice but to calculate and
include the cost of the risk of lending to a buyer without a down
payment of 20%, which would result in higher rates… And possibly to
you needing to push back the project of buying your dream house.

Who offers mortgage insurance?

In Canada, the main supplier of mortgage insurance is the Canada
Mortgage and Housing Corporation (CMHC), a parapublic entity. However,
this type of insurance is also offered by private lenders, like
Genworth Canada and the Canada Guaranty Mortgage Insurance Company.

What happens if you already have mortgage insurance and you buy a
new property?

It’s not uncommon for a first-time buyer to decide to buy another
property after a few years. Your family might be growing, or maybe
your office moved or you’re itching to get into the real estate
market… Whatever the reason, it’s highly likely that a new mortgage
will be in order. But what should a buyer do if they already have
mortgage insurance on their current home?

In most cases, private lenders will give you the opportunity to
transfer your premium. For example, those dealing with the CHMC have
access to a portability feature that can allow borrowers to save on
premiums or even see them eliminated altogether.

In conclusion, mortgage insurance is an excellent way to become a
homeowner, and at a reasonable cost. If you fixate on the cost of
premiums, it’s important to remember that an additional year of
renting represents months of rent lining someone else’s pockets rather
than paying off a home that belongs to you. Run the numbers and don’t
hesitate to ask an advisor for help.

Legal disclaimer

Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank of Canada.

The articles and information on this website are protected by the copyright laws in effect in Canada or other countries, as applicable. The copyrights on the articles and information belong to the National Bank of Canada or other persons. Any reproduction, redistribution, electronic communication, including indirectly via a hyperlink, in whole or in part, of these articles and information and any other use thereof that is not explicitly authorized is prohibited without the prior written consent of the copyright owner.

The contents of this website must not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice. National Bank and its partners in contents will not be liable for any damages that you may incur from such use.

This article is provided by National Bank, its subsidiaries and group entities for information purposes only, and creates no legal or contractual obligation for National Bank, its subsidiaries and group entities. The details of this service offering and the conditions herein are subject to change.

The hyperlinks in this article may redirect to external websites not administered by National Bank. The Bank cannot be held liable for the content of external websites or any damages caused by their use.

Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries.
For financial or business advice, please consult your National Bank advisor, financial planner or an industry professional (e.g., accountant, tax specialist or lawyer).